BI-LO files for bankruptcy protection, blames current credit crisis

by Tim Linden | March 25, 2009

BI-LO LLC, a South Carolina-based supermarket chain of more than 200 stores owned by Lone Star Funds, filed for Chapter 11 bankruptcy protection March 23, apparently in relation to a $260 million debt obligation that was maturing three days later.

In a press release announcing the action, the company said that it "intends to use the court-supervised process to address an upcoming debt maturity," and it "expects to reach mutually acceptable resolutions with all of its constituencies and to exit bankruptcy as expeditiously as possible."

The press release also noted that BI-LO stores will remain open and operations will continue without interruption during these proceedings.

"On an operational level, we are making significant progress this year, and we have seen solid sales momentum and strong cash flow," BI-LO President and Chief Executive Officer Michael Byars said in a company statement. "Our strong operations and liquidity position continue to demonstrate the strength of our business model, and the company has continuously satisfied all of its obligations to date under the term loan and otherwise. In a normal credit environment, we would have expected to refinance the maturing term loan on reasonable terms in the ordinary course of business. Unfortunately, the current credit environment is very challenging."

The press release noted that BI-LO has received a commitment for a $100 million debtor-in-possession financing, which will allow it to run its supermarket business in a normal fashion.

Neither the size of the company's debts nor the amount owed the produce industry was immediately available. Typically in these types of cases, produce industry attorneys who specialize in the Perishable Agricultural Commodities Act are inundated with calls from potential creditors, but at least in the first few days following this bankruptcy protection filing, that has not been the case.

That might be a result of the business model that BI-LO used. C&S Wholesale Grocers, based in Hatfield, MA, is listed as BI-LO's top creditor with $16.7 million in debt. The company is a full-line distributor that apparently was a major supplier of BI-LO, which could include both groceries and produce.

Tom Oliveri, director of trade practices for Western Growers Association, said that C&S Wholesale Produce, a division of C&S Wholesale Grocers, could well have been the chain's major produce supplier taking possession of product from shippers. If that is the case, shippers will not be directly involved in the bankruptcy proceedings.

C&S did not immediately return phone calls asking for comment.

According to news reports and the company web site, BI-LO began operations in 1961. In 1977, it was purchased by Royal Ahold, the Netherlands-based grocery giant, which merged 55 Red Food Stores into the BI-LO chain in the 1990s. In 2001, Ahold bought the Bruno's Supermarkets chain and merged its operations with BI-LO. In 2005, Ahold sold the BI-LO/Bruno's chain to a private equity company, Lone Star Funds, which eventually separated the two chains. Bruno's filed for bankruptcy protection in 2007.